The HTWC letter actually had some pretty good information on interest rate spreads, types of assets and liabilities, etc. If they have negative earnings due to marks on their loans worsening, I have no problem with that. If they are going to take a bath on bad loans and claim bad market conditions, that would bug me, but there is still a great deal of cushion in the stock.
I disagree that no stock is too cheap to sell. There can be stocks too cheap to sell. Cyclical stocks, stocks with significant bankruptcy risk, stocks bleeding cash, etc are NOT among those. On signs of seriously deteriorating fundamentals, one should get out, even at a large loss. Solid, under-leveraged, below-book values plays with margins of safety can be too cheap to sell IMO, for the following reason.
Value stocks can often languish and then move up quite dramatically at the most random of times (ANS a recent example). Forecasting short-term performance is notoriously difficult, and I think a true value investor should be prepared to hold for at least a couple of years. Dumping based off short-term results is generally a mistake IMO.
That being said, it is preferable to see a positive catalyst coming up. Fed rate cuts should help lower their borrowing costs over time (as cds and other borrowings reset lower), but with deteriorating credit conditions we will see how the business goes. If management instituted a dividend or buyback that would greatly help, but they haven't made any mention of those.
MC |
